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Question: A corporation commissioned an accounting firm to


A corporation commissioned an accounting firm to recalculate the way it accounted for leasing transactions. With the new calculations, the corporation was able to file amended tax returns for the past few years that increased the corporation’s net operating loss carryover from $3,000,000 to $5,000,000. Was the corporation wise to pay the accountants for their work that led to the increase in the NOL carryover? What factors should be considered in making this determination?


> Is the character of partnership income/gains and expenses/losses determined at the partnership or partner level? Why?

> What are some common separately stated items, and why must they be separately stated to the partners?

> Amy is the sole shareholder of a corporation. Rather than have the corporation pay her a dividend, Amy decides to have the corporation declare a “bonus” at year-end and pay her tax-deductible compensation. What potential tax issue may arise in this situa

> What is a partnership’s ordinary business income (loss) and how is it calculated?

> When are partnerships eligible to use the cash method of accounting?

> Explain the least aggregate deferral test for determining a partnership’s year end and discuss when it applies.

> In what situation will there be a common year-end for the principal partners when there is no majority interest taxable year?

> If a partner with a taxable year-end of December 31 is in a partnership with a March 31 taxable year-end, how many months of deferral will the partner receive? Why?

> Why do you think partnerships, rather than the individual partners, are responsible for making most of the tax elections related to the operation of the partnership?

> How do partners who purchase a partnership interest determine the tax basis and holding period of their partnership interests?

> Distinguish between a capital interest and a profits interest, and explain how partners and partnerships treat when exchanging them for services provided.

> Aaron, Deanne, and Keon formed the Blue Bell General Partnership at the beginning of the current year. Aaron and Deanne each contributed $110,000 and Keon transferred an acre of undeveloped land to the partnership. The land had a tax basis of $70,000 and

> LeBron, Dennis, and Susan formed the Bar T LLC at the beginning of the current year. LeBron and Dennis each contributed $200,000 and Susan transferred several acres of agricultural land she had purchased two years earlier to the LLC. The land had a tax b

> A shareholder receives appreciated noncash property in a corporate distribution and assumes a liability attached to the property. How does this assumption affect the amount of gain the corporation recognizes? From the corporation’s perspective, does it m

> What was IBM’s accounting effective tax rate for 2014? What items caused the company’s accounting effective tax rate to differ from the “hypothetical” tax rate of 35 percent? What was the company’s cash effective tax rate for 2014? What factors cause a c

> Assume that on January 1, year 1, ABC, Inc. issued 5,000 stock options with an estimated value of $10 per option. Each option entitles the owner to purchase one share of ABC stock for $25 a share (the per share price of ABC stock on January 1, year 1 whe

> On July 1 of year 1, Riverside, Corp. (RC), a calendar-year taxpayer, acquired the assets of another business in a taxable acquisition. When the purchase price was allocated to the assets purchased, RC determined it had a basis of $1,200,000 in goodwill

> JDog corporation owns stock in Oscar, Inc. JDog received a $10,000 dividend from Oscar, Inc. What temporary book-tax difference associated with the dividend will JDog report for the year in the following alternative scenarios (income difference only - ig

> Assume Maple Corp. has just completed the third year of its existence (year 3). The table below indicates Maple’s ending book inventory for each year and the additional §263A costs it was required to include in its ending inventory. Maple immediately exp

> On its year 1 financial statements, Seatax Corporation, an accrual-method taxpayer, reported federal income tax expense of $570,000. On its year 1 tax return, it reported a tax liability of $650,000. During year 1, Seatax made estimated tax payments of $

> ELS corporation is about to begin its sixth year of existence. Assume that ELS reported gross receipts for each of its first five years of existence for scenarios A, B, and C as follows: a. In what years is ELS allowed to use the cash method of accountin

> ATW corporation currently uses the FIFO method of accounting for its inventory for book and tax purposes. Its beginning inventory for the current year was $8,000,000. Its ending inventory for the current year was $7,000,000. If ATW had been using the LIF

> In year 1, Lazy Corporation reported a $500,000 net operating loss for regular tax purposes and a $450,000 net operating loss for alternative minimum tax purposes (called an alternative tax net operating loss). In year 2, Lazy reported $450,000 of taxabl

> In year 1, GSL Corp.’s alternative minimum tax base was $2,000,000 and its regular tax liability is $350,000. a. What is GSL’s total tax liability for years 1, 2, 3, and 4 (by year) assuming the following? Year 2: AMT base $600,000; Regular tax liabili

> Compute ACC, Inc.’s tentative minimum tax (TMT), alternative minimum tax (AMT), and minimum tax credit (MTC) in each of the following alternative scenarios: a. ACC’s alternative minimum tax base is $500,000 and its regular tax liability is $80,000. b. AC

> What is a tax position as it relates to the application of ASC 740 to uncertain tax positions?

> Assume JJ Inc. must pay the AMT for the current year. Near the end of the year, JJ is considering making a charitable contribution of $20,000. What is its after-tax cost of the contribution under each of the following alternative scenarios? a. JJ’s AMTI

> Assume CDA corporation must pay the AMT for the current year. It is considering entering into a transaction that will generate $20,000 of income for the current year. What is CDA’s after-tax benefit of receiving this income in each of the following alter

> What is WSS Corporation’s AMT base in each of the following scenarios? a. WSS’s AMTI is $50,000. b. WSS’s AMTI is $175,000. c. WSS’s AMTI is $300,000. d. WSS’s AMTI is $1,000,000.

> During the current year, FTP Corporation reported regular taxable income of $500,000. FTP used the following information in its tax-related computations: • $12,000 interest from Irvine City bonds: Bonds issued in 2013 and proceeds used to fund public sch

> During the current year, ELS Corporation reported the following tax-related information: • $5,000 tax exempt interest from public activity bonds issued in 2008. • $45,000 gain included in taxable income under the installment method. The installment sale

> During the current year, CRS Inc. reported the following tax-related information: • $10,000 tax-exempt interest from public activity bonds issued in 2013. • $16,000 tax-exempt interest from private activity bonds issued in 2013. • $150,000 death benefit

> Last year, Cougar Corp. (CC) reported a net operating loss of $25,000. In the current year, CC expected its current year tax liability to be $440,000 so it made four equal estimated tax payments of $110,000 each. Cougar closed its books at the end of eac

> Last year, JL Corporation’s tax liability was $900,000. For the current year, JL Corporation reported the following taxable income at the end of its first, second, and third quarters (see table below). What are JL’s mi

> For the current year, LNS corporation reported the following taxable income at the end of its first, second, and third quarters. What are LNS’s minimum first, second, third, and fourth quarter estimated tax payments determined using the

> Last year, BTA Corporation, a calendar-year taxpayer, reported a net operating loss of ($10,000) and a $0 tax liability. BTA confidently anticipates a current year tax liability of $240,000. What minimum estimated tax payments should BTA make for the fir

> Briefly describe the two step process a company must undertake when it evaluates whether it can record the tax benefit from an uncertain tax position under ASC 740.

> Last year, TBA Corporation, a calendar-year taxpayer, reported a tax liability of $100,000. TBA confidently anticipates a current year tax liability of $240,000. What minimum estimated tax payments should TBA make for the first, second, third, and fourth

> ABC’s taxable income for the year is $25,000 and CBA’s taxable income for the year is $10,000,000. Compute the combined tax liability of the two corporations assuming the following: a. Amanda, Jermaine, and O’Neil each own one-third of the stock of ABC a

> ABC’s taxable income for the year is $200,000 and CBA’s taxable income for the year is $400,000. Compute the combined tax liability of the two corporations assuming the following: a. Amanda, Jermaine, and O’Neil each own one-third of the stock of ABC and

> Wasatch Corp. (WC) received a $200,000 dividend from Tager Corporation (TC). WC owns 15 percent of the TC stock. Compute WC’s deductible DRD in each of the following situations: a. WC’s taxable income (loss) without the dividend income or the DRD is $10

> Riverbend Inc. received a $200,000 dividend from stock it held in Hobble Corporation. Riverbend’s taxable income is $2,100,000 before deducting the dividends received deduction (DRD), a $40,000 NOL carryover, a $10,000 domestic production activities dedu

> Maple Corp. owns several pieces of highly valued paintings that are on display in the corporation’s headquarters. This year, it donated one of the paintings valued at $100,000 (adjusted basis of $25,000) to a local museum for the museum to display. What

> Coattail Corporation (CC) manufactures and sells women and children’s coats. This year CC donated 1,000 coats to a qualified public charity. The charity distributed the coats to needy women and children throughout the region. At the time of the contribut

> In year 1 (the current year), LAA Inc. made a charitable donation of $100,000 to the American Red Cross (a qualifying charity). For the year, LAA reported taxable income of $550,000 which included a $100,000 charitable contribution deduction (before limi

> In year 1 (the current year), OCC Corp. made a charitable donation of $200,000 to the Jordan Spieth Family Foundation (a qualifying charity). For the year, OCC reported taxable income of $1,500,000 before deducting any charitable contributions, before de

> For tax purposes, what happens to a corporation’s charitable contributions that are not deducted in the current year because of the taxable income limitation?

> What is a company’s book equivalent of taxable income and how does this computation enter into the income tax provision process?

> Which limitations might restrict a corporation’s deduction for a cash charitable contribution? Explain how to determine the amount of the limitation.

> What must a decision maker consider when deciding whether to carry back a net operating loss or to elect to forgo the carryback?

> What is the carryback and carryover period for a net operating loss? Does it depend on the size of the corporation? Explain.

> What are the common book-tax differences relating to accounting for capital gains and losses? Do these differences create favorable or unfavorable book-to-tax adjustments?

> How do corporations account for capital gains and losses for tax purposes? How is this different from the way individuals account for capital gains and losses?

> Describe the book-tax differences that arise from nonqualified stock options granted after ASC 718 became effective.

> Describe the book-tax differences that arise from incentive stock options granted after ASC 718 became effective.

> Describe the book-tax differences that arise from incentive stock options and nonqualified stock options granted before ASC 718 became effective.

> Describe how goodwill recognized in an asset acquisition leads to temporary book-tax differences.

> What are the elements that define a tax planning strategy as it applies to determining if a valuation allowance is necessary? Provide an example where a tax planning strategy may be necessary to avoid recording a valuation allowance.

> When a corporation receives a dividend from another corporation does the dividend generate a book-tax difference to the dividend-receiving corporation (ignore the dividends received deduction)? Explain.

> Describe the relation between the book-tax differences associated with depreciation expense and with gain or loss on disposition of depreciable assets.

> Why is it important to be able to determine whether a particular book-tax difference is permanent or temporary?

> What is the difference between permanent and temporary book-tax differences?

> What is the difference between favorable and unfavorable book-tax differences?

> Briefly describe the process of computing a corporation’s taxable income assuming the corporation must use GAAP to determine its book income. How might the process differ for corporations not required to use GAAP for book purposes?

> Can taxable corporations use the cash method of accounting? Explain.

> In general terms, identify the similarities and differences between the corporate taxable income formula and the individual taxable income formula.

> What basic tax planning strategies might a corporation that is expected to owe AMT this year but not next year engage in? How would those strategies change if the corporation expected to be in AMT next year but not in the current year?

> How does a corporation compute its minimum tax credit? How does a minimum tax credit benefit a corporation?

> Which of the four sources of taxable income are considered objective and which are considered subjective? Which of these sources generally receives the most weight in analyzing whether a valuation allowance is necessary?

> How is it possible that a corporation’s marginal AMT rate is greater than 20 percent if the stated AMT rate is 20 percent?

> What is the corporate AMT exemption? Is it available to all corporations? Briefly explain.

> What does the ACE adjustment attempt to capture? How does a corporation determine its ACE adjustment?

> What is the conceptual difference between adjustments and preference items for AMT purposes?

> Briefly describe the process of computing a corporation’s AMT.

> Are any corporations exempt from the AMT? Briefly explain.

> Describe the annualized income method for determining a corporation’s required estimated tax payments. What advantages does this method have over other methods?

> How does a corporation determine the minimum amount of estimated tax payments it must make to avoid underpayment penalties? How are these rules different for large corporations than they are for other corporations?

> What is the due date for a calendar year-end corporation tax return Form 1120 for 2016? Is it possible to extend the due date? Explain.

> How is the Schedule M-1 similar to and different from a Schedule M-3? How does a corporation determine whether it must complete Schedule M-1 or Schedule M-3 when it completes its tax return?

> Briefly describe the four sources of taxable income a company evaluates in determining if a valuation allowance is necessary.

> Describe the three types of controlled groups.

> Explain the controlled group rules in very general terms and indicate what type of behavior the rules are attempting to prevent in terms of computing a corporation’s tax liability.

> Why do the marginal rates in the corporate tax rate schedule increase and then decrease before increasing again?

> What limitations apply to the amount of the allowable dividends received deduction?

> How does a corporation determine the percentage for its dividends received deduction? Explain.

> Why does Congress provide the dividends received deduction for corporations receiving dividends?

> What are common book-tax differences relating to corporate charitable contributions? Are these differences favorable or unfavorable?

> Compute HC Inc.’s current year taxable income given the following information relating to its 2016 activities. Also, compute HC’s Schedule M-1 assuming that HC’s federal income tax expense for book purposes is $30,000. • Gross profit from inventory sales

> Compute MV, Corp.’s 2016 taxable income given the following information relating to its year 1 activities. Also, compute MV’s Schedule M-1 assuming that MV’s federal income tax expense for book purposes is $100,000. • Gross profit from inventory sales of

> XYZ is a calendar-year corporation that began business on January 1, 2016. For 2016, it reported the following information in its current year audited income statement. Notes with important tax information are provided below. Required: a. Reconcile book

> What is the difference between recognition and realization as it applies to the recording of a deferred tax asset on a balance sheet?

> Timpanogos Inc. is an accrual-method calendar-year corporation. For 2015, it reported financial statement income after taxes of $1,152,000. Timpanogos provided the following information relating to its 2016 activities: Life insurance proceeds as a result

> For the current year, Maple Corporation, a C corporation, reports taxable income of $200,000 before paying salary to its sole shareholder Diane. Diane’s marginal tax rate on ordinary income is 35.9 percent (including the additional Medicare tax) and 18.8

> For the current year, Custom Craft Services Inc. (CCS), a C corporation, reports taxable income of $200,000 before paying salary to Jaron the sole shareholder. Jaron’s marginal tax rate on ordinary income is 35 percent and 15 percent on dividend income.

> After several years of profitable operations, Javell, the sole shareholder of JBD Inc., a C corporation, sold 18 percent of her JBD stock to ZNO Inc., a C corporation in a similar industry. During the current year JBD reports $1,000,000 of after-tax inco

> Jack would like to organize PPS as either an LLC or as a C corporation generating an 11 percent annual before-tax return on a $100,000 investment. Assume Jack’s marginal tax rate on earned income is 38 percent (including the .9% additional Medicare tax a

> What are the two components of a company’s income tax provision? What does each component represent about a company’s income tax provision?

> Briefly describe the six step process by which a company computes its income tax provision.

> What distinguishes an income tax from other taxes?

> How does the fact that most corporations file their financial statements several months before they file their income tax returns complicate the income tax provision process?

2.99

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